Banks cautious over lending for properties with underground storage tanks may finally see a regulatory impediment drop as the EPA closes in on eliminating some of the liability responsibilities from lenders holding secured interests in those properties. The rule, expected to be finalized midway through 1995, would make it safer for secured lenders to hold a security interest in properties containing underground storage tanks--USTs--and avoid environmental cleanup liability by broadening a limited exemption in the Resource Conservation and Recovery Act.

The rules comment period expired Aug. 12 and EPA sources said it should become final in August 1995. It was originally published in the Federal Register June 13.

The EPA said it hoped that this rule would assist creditworthy UST owners, noting that a significant number of lenders were reluctant to make loans to UST owners and, as a result, those owners might not be able to comply with the upgrade and maintenance requirements outlined in RCRA.

The RCRA extends a statutory exemption from owner liability for those entities that do not engage in the business of petroleum production, refining or marketing. But the act does maintain a secured interest, or indicia,ownership in properties with USTs.

That exemption, however, applies only to lenders in the Acts provision related to cleanup-related responsibilities. Under the proposed rule, the exemption would apply broadly to entities holding almost any kind of indicia or evidence of ownership of UST property. The rule would not apply, however, to lenders acting as trustees or holding indicia of ownership for any reason other than to protect a security interest.

The linchpin of the rules broadened exemption is the lenders role in the management of the UST property. Because most lenders become involved in the process during foreclosure proceedings, EPA plans to employ a two-pronged test to determine the lenders pre-foreclosure role in the property's management.

EPA would consider the holder of indicia of ownership a participant in management if it either:

* Exercises decision-making control over the borrowers environmental compliance, such that the holder has undertaken responsibility for the borrowers UST or UST system management; or

* Exercises control at a level comparable to that of a manager of the borrowers enterprise, such that the holder has assumed the day-to-day decision making with respect to environmental compliance, or substantially all of the operation aspects of the enterprise other than environmental compliance.

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